January 5, 2006
Xxxxx Xxxxxxxx
Sunrise Coal, LLC
0000 Xxxxx Xxxx 00
Xxxxx Xxxxx, Xxxxxxx 00000
Re: Sunrise Coal, LLC
Gentlemen:
This letter, effective when executed by the parties hereto, will evidence the
current mutual intent, as set forth in Article 1 below, of Hallador Petroleum
Company, a Colorado corporation ("Hallador"), on the one hand, and Sunrise
Coal, LLC an Indiana limited liability company ("Sunrise"), on the other
hand, for Hallador and Sunrise to enter into an agreement with respect to the
merger of Hallador into a wholly-owned subsidiary of a holding company to be
formed by Xxxxxxxx and the contribution of the membership interests in
Sunrise to such holding company, and into such documents related thereto as
the Parties deem necessary or appropriate (collectively, the "Transaction
Documents"). Hallador and Sunrise are sometimes referred to individually as
"Party" and collectively as the "Parties." The proposed formation of the
holding company, the proposed merger of Hallador with a subsidiary of such
holding company, the proposed contribution of the Sunrise membership
interests to the holding company, and the transactions related thereto, are
collectively referred to herein as the "Transactions."
This letter is intended to set forth certain basic terms of the understanding
reached to date and to serve as a basis for further discussions and
negotiations between the Parties with respect to the Transactions and the
Transaction Documents. The matters set forth in Article 1 are not intended
to and do not constitute a binding agreement of the Parties with respect to
the Transactions or the Transaction Documents. Any such binding agreement
will arise only upon the negotiation, execution and delivery of mutually
satisfactory definitive agreements and the satisfaction of the conditions set
forth therein, including obtaining satisfactory financing and the approval of
such agreements by the respective governing authority of each Party.
The matters set forth in Article 2 of this letter do constitute binding
agreements of the Parties.
In consideration of the rights and obligations of the Parties hereunder, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the Parties, the Parties hereby agree as follows:
ARTICLE 1
TRANSACTIONS
1.1 The Transactions. Hallador shall form a corporation under the laws of
the State of Delaware ("Holding Co"). Holding Co shall form a wholly-
owned subsidiary. Subject to obtaining all required consents and
approvals, Hallador shall merge with the wholly-owned subsidiary of
Holding Co, and the members of Sunrise shall contribute their membership
interests to Holding Co in exchange for shares of Holding Co.
Subsequent to the proposed merger and contribution, the Hallador
shareholders and the Sunrise members shall hold stock in Holding Co,
with Holding Co owning 100% of the outstanding equity of both Sunrise
and Hallador. The transaction will also be subject to filing and
granting of effectiveness of a registration statement on Form S-4 by
Hallador regarding Holding Co and the Transactions. The merger of
Hallador into the Holding Co subsidiary is intended to qualify as a
"reorganization" under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and the reorganization or merger of
Hallador into the Holding Co subsidiary, together with the contribution
by the Sunrise members of their membership interests in Sunrise to
Holding Co, is intended to qualify as a transaction under Section 351 of
the Code.
1.2 Transaction Documents. The Parties shall negotiate the terms and
conditions of the Transaction Documents in good faith in accordance with
the transaction terms set forth below:
Upon the merger of one subsidiary of Holding Co with and into
Hallador, the Hallador shareholders will exchange their shares of
Hallador stock for shares of Holding Co stock, receiving one share
of Holding Co stock for each share of Hallador stock.
The members of Sunrise will contribute their interests in Sunrise
to Holding Co in exchange for:
9,250,000 shares of common stock of Holding Co
an aggregate of $1,500,000 in cash
warrants to purchase an aggregate of 1,300,000 shares of
common stock of Holding Co at an exercise price determined
based on the trading price of Hallador's common stock
Certain shareholders of Hallador and certain members of Sunrise
will enter into voting agreements regarding approval of the
respective merger and contribution.
Sunrise shall have no more than $15,500,000 of outstanding debt
under its current bank financing and $2,500,000 of loans from its
members.
Holding Co shall obtain bank financing of up to $30,000,000 to
replace Sunrise's existing bank financing.
Sunrise shall prepay an aggregate of $1,000,000 of the loans
extended to Sunrise by certain of its members at the closing of
the Holding Co bank financing (the remaining aggregate $1,500,000
of member loans will be repaid in accordance with the terms of
the loans).
The bridge loan extended to Sunrise by Hallador shall be paid in
full or forgiven at the closing of the Transaction.
Sunrise acknowledges that in connection with services rendered to Hallador
with respect to the Transactions, Xxxxxxxx has agreed to pay certain
compensation consisting of $250,000 in cash, 500,000 shares of common
stock and warrants to purchase 360,000 shares of common stock, to an
affiliate of Hallador. Sunrise further acknowledges that Hallador may
issue and sell up to 3,181,818 shares of common stock at $2.20 per share
to private investors prior to the closing of the Transactions.
ARTICLE 2
BINDING AGREEMENTS
1.2 Exclusivity. This letter shall remain in force and effect until the
earlier of the date that the Parties enter into definitive Transaction
Documents, or June 1, 2006 (the "Exclusivity Period"). During the
Exclusivity Period, none of Sunrise or its members, managers, officers
or directors will, directly or indirectly, discuss, solicit, pursue,
negotiate for or commit to any arrangements relating to the sale or
transfer of membership interests or other equity ownership interest in
Sunrise or of any of Sunrise's assets. If this letter is terminated by
Hallador prior to entering into the Transaction Documents, the
Exclusivity Period shall also terminate.
2.2 Confidentiality. The contents of this letter and negotiations hereunder
are intended to be confidential and are not to be discussed with or
disclosed to any third person, except (i) Hallador may publicly announce
it is entering into negotiations with Sunrise with respect to the
Transactions; (ii) with the express prior written consent of the other
Party hereto; (iii) as may be required or appropriate in response to any
summons, subpoena or discovery order or to comply with any applicable
law, order, regulation, ruling, stock exchange or national market rule;
provided that (a) the disclosing Party seeks, under applicable law,
confidential treatment for such information by the governmental or
regulatory authority or such other recipient, where appropriate, and
(b) prior to such disclosure, the other Party is given prompt written
notice of the disclosure requirement so that it may take whatever action
it deems appropriate, including intervention in any proceeding and the
seeking of an injunction to prohibit such disclosure; or (iv) to
financial advisors, legal counsel and other consultants assisting such
Party, or to third parties in order to obtain such consents or approvals
from such third parties as may be necessary or desirable.
2.3 Expenses. Except as expressly set forth herein, each Party shall bear
its own costs associated with negotiating and performing its obligations
under this letter.
2.4 Approval. No Party shall be bound by any Transaction Document until
(i)such Party's governing body shall have approved the Transaction
Documents, (ii) such Party shall have executed the Transaction
Documents, and (iii) all conditions precedent to the effectiveness of
the Transaction Documents shall have been satisfied, including the
obtaining of requisite equity and debt financing and the obtaining of
any and all requisite federal and state regulatory orders or approvals
in form and substance satisfactory to the Parties.
2.5 Entire Agreement. This letter constitutes the entire agreement of the
Parties relating to the subject matter hereof and supersedes all prior
discussions, agreements or understandings, whether oral or written,
relating to such subject matter. There are no other written or oral
agreements or understandings between the Parties. Any amendment of this
letter must be written and signed by both Parties.
2.6 Governing Law. THIS LETTER SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT GIVING EFFECT
TO CONFLICT OF LAW PRINCIPLES.
2.7 Non-Inclusive; Non-Binding. This letter does not contain all matters
upon which agreement must be reached in order for the Parties to enter
into the Transaction Documents and consummate the Transactions. This
letter does not create and is not intended to create a binding and
enforceable contract between the Parties with respect to the provision
of Article 1 and the subject matter of any Transaction Document, and may
not be relied upon by a Party as the basis for a contract by estoppel or
otherwise. A binding commitment with respect to the Transactions and
the Transaction Documents can only result from the execution and
delivery of definitive Transaction Documents.
2.8 Relationship of Parties. The Parties shall not be deemed in a
relationship of partners or joint venturers by virtue of this letter,
nor shall either Party be an agent, representative, trustee or fiduciary
of the other. Neither Party shall have any authority to bind the other
to any agreement.
2.9 Attorneys' Fees. In the event it becomes necessary for either Party to
file a suit to enforce the binding provisions of this letter, the
substantially prevailing Party shall be entitled to recover, in addition
to all other remedies or damages, reasonable attorneys' fees and costs
incurred.
[Signature page follows]
If the provisions of Article 1 correctly set forth our current understanding
and the provisions of Article 2 set forth our binding agreement, please
execute both originals of this letter in the space provided below, retain one
fully-executed original for your file, and return the other original to the
undersigned. This letter may be executed in counterparts and by facsimile
(followed by originals as set forth in the foregoing sentence), and all such
counterparts together shall constitute but one agreement.
Very truly yours,
HALLADOR PETROLEUM COMPANY
By:/S/XXXXXX X. XXXXXX
Xxxxxx X. Xxxxxx
President and CEO
Acknowledged, Agreed to and Accepted:
SUNRISE COAL, LLC
By:/s/ XXXXX X XXXXXXXX
Xxxxx X. Xxxxxxxx
Managing Member
and Attorney-in-Fact
